If a rights offer is used as the means of funding a positive net present value project,then shareholders should expect the price of their shares to:

Question

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When a company undertakes a project with a positive net present value (NPV), it indicates that the project is expected to generate more cash than what is currently valued, leading to an increase in the company's overall value. When funding such a project through a rights offer, the company is issuing new shares to raise capital. Although this dilutes the ownership, the value added by the positive NPV project should, in theory, increase the value of the company, leading to an increase in the share price. This is because the market anticipates the future cash flows from the project to be higher, thus increasing the firm's value and, consequently, its share price.

If a Rights Offer Is Used as the Means of Funding